Danisco profit impacted by acquisitions and costs

By Anthony Fletcher

- Last updated on GMT

Related tags: Euro, Denmark, Danisco

Danisco's consolidated profit plummeted 25 per cent as expected to
DKK 726 million for the nine months to 31 January, due largely to
costs associated with integrating enzyme business Genencor.

Operating profit within the group's Ingredients division has also been downscaled due to rising energy and raw material prices, though the firm remains confident that its financial performance was as solid as could have been expected.

"In our opinion, the (unaudited) interim report gives a true and fair view of the group's assets, liabilities, financial position, cash flows and results of operations,"​ said the company in a statement released today.

Furthermore, the Danish group said that it had maintained a strong cash flow from operations and is on track to achieve its overall expectations for 2005/06.

Revenue for the recorded nine months grew by DKK 2.6 billion or 20 per cent to DKK 15.6 billion, of which Genencor represented DKK 1.9 billion and Ingredients DKK 0.7 billion.

In sum, the company believes it has, at a minimum, maintained its market position. The integration of Genencor has progressed as expected, and with the restructurings announced in sugar, the division believes it has a strong platform to reduce the impact of the upcoming EU sugar reform.

This issue certainly needs to be dealt with. The European sugar industry continues to be subject to intensified competition in the run-up to the sugar reform and the WTO decision banning exports of C sugar, and this has meant rising prices for export licenses.

In response, Danisco announced recently a restructuring plan for the sugar business in preparation of the EU sugar reform. The plan includes closing factories in Denmark, Sweden and Finland, with a total staff cut of around 350 employees.

The company believes that the closures will generate a writedown of around DKK 1 billion over the implementation period, offset by net income from quota sales of around DKK 0.5 billion. The resulting net expense of DKK 0.5 billion will be expensed under specialitems.

Growth in Ingredients can be broken down into 5 per cent organic growth, 26 per cent acquisition growth and 4 per cent currency translation effect.

Within Ingredients, Danisco's texturant business, which includes emulsifiers, textural ingredients and functional systems, recorded organic growth of 7 per cent year-to-date. The slightly lower growth in Q3 can mainly be attributed to weak markets in parts of Western Europe and Rest of World.

Texturants represent 37 per cent of the firm's Ingredients business.

Dairy, ice-cream along with fruit and jam were the strongest growth segments within applications, while margarine and oils had difficult trading conditions. Speciality products, which includes flavours, food enzymes, cultures, animal nutrition and Genencor (technical enzymes), reported organic year to date growth of 2 per cent.

Speciality products represent 51 per cent of Danisco's Ingredients business.

The outlook suggests that this is a year of consolidation for Danisco. Revenue for 2005/06 is forecast at around DKK 21 billion against previously in the range of DKK 20.5-22.0 billion. EBITDA before special items and share-based payments is expected around DKK 3.5 billion against previously in the range of DKK 3.6 - 3.8 billion.

Special items are expected to amount to an unchanged net expense of DKK 250-300 million before the announced consequences of the EU sugar reform. Consolidated profit before share-based payments and after special items is expected to be unchanged in the range of DKK 1.2-1.3 billion before the announced consequences of the EU sugar reform.

Related topics: Markets

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